The derating of the MBA

BY Saurabh Mukherjea, Head of Equities, Ambit Capital

The MBA damages society in many different ways. The first of which is such misallocation of talent.

A cousin of mine, who is the Head of Risk at a leading Indian fund house, met a bright young graduate from Kolkata’s elite Presidency College a few years ago. This encounter took place in Mumbai and my cousin, already well established on the corporate ladder by then, advised the young man to pursue an MBA. The youngster replied that he had come to Mumbai to become a Music Composer and had no intention of pursuing an MBA. You, I and my cousin should now be thankful for the Presidency graduate’s determination – had this youngster become a corporate drone, we probably would have never heard about Pritam Chakraborty, my current favourite Music Composer.

As I go on to explain in this column, the MBA damages society in many different ways the first of which is such misallocation of talent – people who have deep talents in a variety of different spheres of life get sucked into the MBA because it represents what appears to be a relatively low risk route to a meal ticket in the corporate world. The damage that this apparently low risk meal ticket inflicts at a personal level was captured beautifully in the highest grossing Bollywood movie of all time, “Three Idiots” (although, I confess that the focus of that movie is more on IIT than on the MBA).

In my line of work, investment advice, and more generally, in investment management, the MBA is arguably even more damaging. My reading of the most successful investment managers is that they tend to be patient, level-headed, resilient individuals who have the fortitude to stand their ground in the face of waves of fear and greed that sweep through the market. The MBA represents the anti-thesis of this mindset – in the words of one of India’s most successful fund managers, “An MBA wrecks your mind…it instils in you all the wrong things about corporate life and does not teach you what you actually need to know about Finance, about Balance Sheets, about investing, about patience.”

Thirdly, the MBA is a bad investment for the majority of those who do it. Through entrance exams – CAT, GMAT, etc – the MBA filters the best brains of a generation into a classroom where Economics & Finance 101 is imparted in dressed up format with overheated business jargon for one or two years. Then everyone is packed into a pen, spruced up and readied for recruiters to come and choose. Now, let’s segment the kids in the pen into two lots to see how this game works.

The winners, i.e. the whizkids, the real superstars of the generation, would have got a job anyway regardless of whether they had spent two years in business school or otherwise; for them the two years is pure “opportunity cost”. These people had the aptitude to structure mergers, analyse investments, create marketing plans, etc – the MBA simply delayed their entry into the labour market and made them enter on terms specified by the recruiter.

The losers i.e. those without innate talent would have struggled in any case to enter the elite professions. The MBA is unlikely to change that – last I heard, the qualification is not known to increase intelligence. But by giving them hope of rising above their limitations, the MBA basically played a confidence trick on them, the same confidence trick that the advertisers of hair tonic or quacks peddling “get rich quick” schemes sell.

Hence for neither category does the MBA really deliver long term cashflow uplift – what it does is use the success of the winners to suck in the next generation of losers. I appreciate that there will be a small minority of people for whom the MBA was a life changing experience and allowed them to switch to a more lucrative profession but, unless these people were oblivious to basic Finance and Economics, that “switch” is unlikely to have come from the content of the MBA.

The good news is that India seems to have wised up to the adverse effects of the MBA. In 2008, 2.76 lakh unfortunates registered for the CAT. After steadily falling for three years, in 2012 the figure has perked up a touch to 2.10 lakh. My high school statistics tells me that this is a CAGR of negative 7%. If this trend continues for another 10 years then only half the number of bright young Indians (around 1 lakh youngsters) will be subjected to the competitive drudgery of CAT. The possibility that within the next decade, less than 100,000 Indians will sit for CAT every year is a very happy thought; that is the sort of change I would like to believe in.

(Saurabh Mukherjea is the Head of Equities at Ambit Capital. The views expressed here are his own and not Ambit Capital’s. The author confesses that he does not have an MBA).

Comments

Your article is very relevant in today's context. The MBA degrees from tier3 and tier 4 colleges are equally bad. The stuff they teach is hardly of any use to them at any point. Another point is that these guys hardly understand simple concepts such as TIme value of money. The profs in these B-Schools hardly have any idea on simple concepts.

LOL ! Even the author of the article (whom you seem to be praising) would find your comment funny and ridiculous ! He must be wondering why you posted this - it only degrades his already degraded article.

Saurabh, your abysmal article only raised one question in my mind: why did YOU have to write such a lazy irrelevant piece? If the intent is to provoke then this is of the level of Diggy Raja - but even his provocations are aimed to distract. What's your excuse?
And in the same vein, this article it abundantly clear that an LSE education does not impart skills in logical reasoning or social commentary - losers of the world unite, eh? ;)

Dear Saurabh,
People in India do an MBA with the same intention as those who get undergraduate degrees in economics from prestigious universities only to get into mundane consulting and financial services jobs. My thoughts on your observations:
1) For every Pritam, there are a thousand others who would have been better doing an MBA since they find it hard to earn a living while struggling to get a break in Bollywood. Forget the IIMs, an MBA even from a tier 3 school helps people get decent jobs, which is important if you want to ensure that the demographic dividend doesn't turn into a demographic bomb. A large part of India's population is still at the 'food and shelter' step on Maslow's Hierarchy (see, I leant something at B-school!) and they need jobs which require them to be certified. An MBA does just that. It's just the way the environment has developed. Grads need to have an MBA before they are looked at for decent jobs. I'll be glad if you can change the system!
2) Agree that MBA programs could be more focused in their approach, but the wide range of disciplines that people come in from necessitates that the boring economics and finance 101 classes are put in the curriculum. As for business platitudes at B-schools, a lot of businesses in a service economy run on platitudes - I'm sure you know what I'm talking about.
3) As for the bright vs the not-so-bright, I think you've got it majorly wrong. By your argument, a guy who's intelligent makes it to the top anyhow. Extending your reasoning further, let's do away with all of education and let the 'bright ones' shine anyhow. I believe the MBA is a great leveller. It gives a second chance to people to work hard and have another shot at what they want to do. I've witnessed innumberable cases of friends and batchmates acing their way through B-schools and getting into chosen careers over and above the 'preferred' candidates who have undergrad backgrounds from IITs or foreign univs. Trust me, they're still doing very well, as opposed to the notion that they're the weak ones who won't endure.
I agree in spirit with your argument that the mad rush for an MBA is irrational. However, what I find taking the argument too far is trashing all MBAs altogether.

Your article unfortunately tars all MBAs with broad brush strokes and fails to bring forth that all all MBA colleges and all MBAs are not created equal. As with elite undergraduate institutes, tier 3 and tier 4 MBA colleges are vastly different than say an ISB, IIM or an Ivy League institute. Had you made this distinction and exercised a little restraint in formulating your hypotheses, your conjecture would have been a lot easier to digest.
Do you have any factual data to back your claim that an MBA is a bad investment for the majority of those who do it? Is this statement based on a statistically insignificant personal inference or is their more to your claim?
Also, If I were to take the liberty of extending your argument further, wouldn't whizkids be better placed to join the workforce right after school? Heck, or even earlier?
While glossing over what the MBA means, you have failed to account for the other benefits that an MBA provides. I list a few below:
1. Imparting functional skills in a variety of skills/tools including marketing, operations, legal, finance, and team work: Today's businesses require a manager to be well versed with not just siloed skills but have an understanding of all aspects of the firms. To my best understanding, a majority of undergraduate courses, even from the best colleges, would be found wanting in this regard.
2. Networking opportunities with peers from different walks of life: Learning from experiences from your peers helps one analyze career paths going forward and since MBA is such a versatile degree, it helps you in changing career path should you choose to do so.
3. A strong alumni network provides great support in terms of finding and connecting with the right people and opportunities-whether its finding a job or getting business/funding for your venture.
4. Meeting with a diverse set of peer group broadens one's thinking about his/ her role in the world and how to tackle challenging situations, be it in a corporate environment or in other walks of life.
5. A lot of MBA learning is focused on un-structured methods-discussions, cases, workshops, dinners- than on structured ones. Such methods enable the sharpening of one's understanding of how the world operates and engenders the development of a rich, leadership-oriented-toolkit to make an impact. This would be largely absent in classroom-based, structured learning that one typically experiences in an undergraduate environment.
I have an MBA from a premier US based institution and can vouch for the fact that the two years spent in B-School were more transforming and personally enriching than any other experience, whether educational or otherwise, that I've experienced till date.

Totally agree with your view point.. Prior to my MBA, i couldn't even understand the ET properly.. It gives you a holistic view of how businesses are run.. In fact, extending your argument, i believe that the four years of engineering is a bigger waste of time than a MBA degree.. No Engineering College (including the IITs) in India has a curriculum designed to let you join the corporate world with all round business knowledge.. Sure, we have heard of lot of IITians who have succeeded in their lives w/o an MBA degree. but when you take statistics into account, this population would not even be 0.1% of the total students who join engg colleges every year.. Therefore, Mr Saurabh: a piece of advice for you.. People read your articles because you seem to be an intelligent individual with an objective view on various things. However, if you start writing articles w/o any facts to back it up, you will end up making a fool out of yourself...

I have been on both sides of the MBA classroom platform - as an MBA student and now as MBA guest faculty. In both roles, I have seen substantial value addition, limited only by the learning drive of the candidate. An MBA is much more than Finance 101. Get an MBA to a debate with an MCom, and the difference is seen. CAs are much more proficient in Finance related areas, but nowhere as strong in other areas of management. Without taking away from the message conveyed, getting someone to write attention catching headline articles when he/she has no personal experience of the activity is sensational journalism and does no credit to your web-site.

I just wonder what would have triggered such a non-contextual article. Saurabh you may not be an MBA neither am I, but I am not sure if you know what's the situation beyond top 8 cities in the country. The only "job worthy" in the country qualification beyond premier engineering is MBA. MBA diploma from a tier III school fetches a far better job than a degree from tier II university. Actually a Bcom/ BSc cant even secure a job beyond 7-8 cities. Forget premier diploma schools, those tier III schools provide better packaging and thought provoking skill than "mugging" degree colleges provide with no faculty at all.
Unfortunately those business schools in India being independent provide Diplomas than Degrees since there are no universities interested in providing good education. There is no education in university even if someone can pay. These schools charge money and give better "diplomas" than university "degrees". I am not sure if you thought it through!

Great thoughts! It is just that I find it surprising that someone who has not even pursued (or taught) can talk so eloquently and in such an authoritative manner about the MBA degree. May be getting your hands dirty (i.e., doing the MBA) first might give you a better perspective about the pros and cons.

Your thoughts are as superficial and under-researched as your views on equities. You are not into investment management, you are on the sell-side and you speak exactly like a sell side guy, half baked opinions. I'll quote some facts.....
1. Warren Buffett a Columbia MBA
2. Seth Klarman a Harvard MBA
3. Ray Dalio 4. Henry Kravis 5. John Paulson....., Stephen A. Schwarzman, Todd Combs, Mario Gabelli, Li Lu, ......while I've only quoted some very successful investment managers, for you to relate better and quicker, the list goes on.....
Why bring the habit of bullshitting on equity strategy into other aspects of life......some food for thought for you!!

How is this article even relevant in the context of your designation. Your article speaks of no relationship with the economy or the equities market (atleast that's what I thought your job was). Seems more like a case of sour grapes, maybe you could not get through CAT and get into an IIM.
Oh, by the way did you know how many applicants does the Harvard MBA program me get in a year. 8,963 applications in 2012. Of which 900 odd get admitted. Does that mean, the popularity of a harvard MBA is only 4.5% of an IIM. No. The drop in no. of CAT applications only shows that the less serious are not wasting time and money on attempting the CAT - which is a sign of people becoming more selective in their career decisions rather than spray around entrance test examinations.

An irresponsible and highly immature take on the subject. Since when has VCCircle started publishing such utter non-sense? A non-mba talking about the subject from the limited interactions he might have had? Of all the examples, Pritam?? If u are really serious about guiding we misinformed souls, and want to play a meaningful role of guiding the youth - how abt doing an MBA from Harvard and then write this article - forget 1 lac, the number of people appearing for CAT will be in 4 digits! Till then, try and get a life! Cheers!

Students will keep making the BAD INVESTMENT in an MBA till coporate talent hunters sit on the banks of sprawling campuses, most of them who themselves have gone through the same grind. Do you think you can provocate them to scout for talent elsewhere? THAT will be some productive writing...

A highly irresponsible article - one sided too. The attempt to paint all MBAs with a single brush smacks of prejudice.Are you saying all MBAs do not possess qualities such as patience, resilience and level headedness.
I worked for 3 years prior to my MBA and believe the 2 years I invested in my MBA was well worth it.

Hope this is not how you advise your institutional clients. Although I fear it may be. For example, sitting in december 2011, market (NIFTY) was down to 4600 with a four year cagr of -6%. It is likely that your projected that in 10 years the NIFTY would touch 2500. Alas, not many took your advice. Can you enlighten us with the market share your firm has?
Jokes apart, you make no new points.Actually I don't see a point of your article (this particular) being published on this forum.
Cheers!
SK

try applying to ambit capital for an opening for something more special than a chaiwalla. they'll chuck ur resume out if you dont have those three letters. share this article with your hr team internally. it'll add more value.

Saurabh,
It is imperative to practice what you preach. Your Company, Ambit, doesn't even talk to candidates without an MBA - forget a basic inetrview. Without an MBA, only your 'personal' contacts can help you at Ambit. Why don't you try and change things at your end first and then advise others?!

I have read many articles that debate about whether an MBA is worth it or not....but most of them have been backed by some data, analysis or the least required for such opinionated statements - Personal Experience. Sadly, this article has none! A 101 lesson in ANY B-school definitely imparts one thing....learn to back ur statements with some logic and ensure u make sense...!!!

Going by this logic, in fact every formal education beyond primary school leads to misallocation of talent. Most of the CEOs of the past century were school drop-outs. So, does that mean we should encourage school drop out numbers if we want to encourage entrepreneurship. Not logical, not cool. What a good MBA teaches you is patience, respect for diversity and adaptation. You can't succeed in a team-work environment if you don't learn these things. So, a good MBA provides you the basic building blocks and a holistic view of business. It does help make one a better person.

Saurabh, its rather surprising to read such an article from you. Maybe i would like to believe what you wanted to convey has nt really come out from this article. The problem i would rather like to highlight is the quality... the pressure of demographics on the education society is to the extent that the quality has really started to suffer... you may have been some of the fortunate ones to reach up the ladder without an MBA but not everyones as fortunate. Not everyone is as intelligent but lets not take for granted that commitment to hardwork is by default absent in such people as well... and it is certainly such candidates who need a ticket (MBA) to get into a decent job. Lets take the example of CFA (highly regarded in your field) even people with level 2 or 3 struggle to get a job in India.... I would certainly be happy to learn if you offer internships to such non-mba or part-cfa.
perhaps if at all it makes sense, you can start an institute.. to promote and allow the unfortunates to pursue something more worthwhile other than an MBA... food for thought!!

The MBA-Non-MBA divide seems as big a chasm in India as the digital divide. Still, I feel every degree has its good points, as well as failures. On the other hand, no one can deny that talent and individual initiative are essential qualities that can be further honed by professional training. What I feel, it's an open-ended case -- some good ventures have come out of IIMs or Harvard or other blue chip institutes but loads of worthy people are also out of this ambit. Let's have proper respect for institutional training and even more respect for awesome individuals who can put ideas to action.

@To the editors of vccircle: I hope that you guys read the article before publishing. An article should be based on research and objective opinions. This seems like its written by an uneducated person or someone who desperately wanted to do a MBA but failed miserably.. Tomorrow if Saurabh Mukhejea says that Education is waste of time, then are you guys going to blindly publish that as well ???

Excellent article as usual. Though as qualified MBA from one of the best institutes in India, it saddens me to see confirmation of something which I already knew for long that an MBA doesn't do anything except give that initial launchpad in the job market. Over the last 10 years an MBA had become what a graduate was 15 years ago. Basically, the minimum qualification to get a decent paying job. Its heartening to see that is finally changing.

Doesn't seem a good article.
First, " the whizkids, the real superstars of the generation, would have got a job anyway regardless of whether they had spent two years in business school or otherwise"--> it may be true for a country like USA where opportunities galore, but for a country like India, generally the best opportunities are available for MBAs, some of the elite undergrad schools being the exception.
Second, "If this trend continues for another 10 years then only half the number of bright young Indians (around 1 lakh youngsters) will be subjected to the competitive drudgery of CAT. "--> the trend has more to do with the CAT becoming a computer based test (CBT). The techniques used by the IIMs to normalise the scores etc., seem to be pushing students away from this 'bet'.
And many guys talented in other areas do emerge in due course of time. We can't derate MBA for that. The first thing to survive in India is to secure your future, govt ain't gonna help you. So, taking a generally better oppotunity has nothing wrong with it.

Saurabh do you have any idea how even your Ambit, any other IB or any MNC works? Ambit until 2008 did hire all from IIMs or ISBs. No wonder you wouldn't know. Even you went to London School for tag. Economics is there is DU as well, but you dont get to where you are with DU degree. Quite a Shallow one....why would you write it...?

What rubbish ! Saurabh failed to do an MBA which is quite evident from this article. Saurabh, please stop writing such rubbish articles. Without going through the grind of a good B-School, you wouldn't know what we are actually talking about, when we decide to hire MBAs. Stop writing such foolish articles in the future.